Penalties under Rule 26 cannot be imposed on transporter without proof of knowledge of illegal goods

The CESTAT New Delhi held that penalties under rule 26 of the Central Excise Rules, 2002, cannot be imposed on the transporter for clandestine manufacture and clearance of Gutkha when the seized goods were found in the transporter's godown at Raipur, not near the manufacturer's premises. The transporter has no legal obligation to ensure goods carried are duty paid unless there is evidence they knew or had reason to believe the goods were liable to confiscation. Since the goods were seized away from the factory and no such knowledge was established, penalties on the transporter and associated parties were set aside. The appeal was allowed.

---

---

ISSUES:

Whether penalty under Rule 26 of the Central Excise Rules, 2002 can be imposed on a transporter and related parties without proof that they knew or had reason to believe that the excisable goods transported were liable to confiscation.Whether mere possession or transportation of excisable goods, found outside the manufacturer's premises, suffices to attract penalty under Rule 26.Whether the transporter has a legal obligation under the Central Excise Act or Rules to ensure that goods transported are duty paid.Whether evidence of connivance or knowledge of clandestine removal of goods is necessary to sustain penalty under Rule 26 against transporters and their directors.

RULINGS / HOLDINGS:

The Court held that penalty under Rule 26 can be imposed only if the person "knows or has reason to believe" that the excisable goods are liable to confiscation; mere transportation without such knowledge is insufficient to attract penalty.It was found that no evidence established that the appellants had knowledge of the non-duty paid nature of the goods or that they were liable for confiscation; therefore, penalties imposed on the transporters and director are unsustainable and set aside.The Court confirmed that there is "no legal obligation on the transporter to ensure that the goods which he is carrying are duty paid" under the Central Excise Act or Rules.The imposition of penalty requires proof of conscious knowledge or at least reason to believe that the goods were non-duty paid and that the transporter was "hand in glove" or connived with the manufacturer; such proof was absent in this case.

RATIONALE:

The Court applied Rule 26 of the Central Excise Rules, 2002, which penalizes any person who "acquires possession of, or is in any way concerned in transporting... any excisable goods which he knows or has reason to believe are liable to confiscation."The Court relied on precedent interpreting the erstwhile Rule 209A of the Central Excise Rules, 1944, emphasizing that the department must prove "conscious knowledge" or at least "reason to believe" the goods were non-duty paid to attract penalty on transporters.It was noted that wrongful or incorrect documentation is common in transportation, and without evidence of aiding and abetting or knowledge, penalty cannot be imposed.The Court referred to multiple Tribunal decisions reinforcing that penalty under Rule 26 requires proof of knowledge or reason to believe, not mere possession or transportation.No dissent or doctrinal shift was indicated; the decision follows established legal principles regarding penalty imposition on transporters under Central Excise Rules.

---